Europe stocks rebound; ARM Holdings rallies

LONDON (MarketWatch) — European stock markets on Tuesday bounced back from the previous day’s sharp selloff after better-than-expected euro-zone data, while investors also digested earnings reports from some of the region’s heaviest hitters.

The Stoxx Europe 600 index
SXXP, -0.64%
rose 0.6% to close at 285.56, climbing back after closing at its lowest level in 2013 on Monday.

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With Japan, China and the U.S. all pursuing weak-currency policies, other major economies are retaliating. James Rickards of Tangent Capital Partners discusses whether the drive to devalue will set off a trade crisis.

“We had a sharp fall yesterday, so it’s not surprising to see markets back upward today,” said Neil Wilkinson, senior fund manager at Royal London Asset Management.

“I was feeling somewhat nervous last week. We had seen markets re-rate upward pretty rapidly in January and for this to continue we will need to see earnings being upgraded,” he said. “We still have a fair chunk of corporations left to report and what they say about the world is important. A big question is if we’ll see more downgrades.”

In Italy, former Prime Minister Silvio Berlusconi vowed he would cut taxes if his coalition wins the general elections later this month, sending Italian sovereign bonds and equities tumbling on Monday.

“From a market perspective it would be a concern if Italy would not continue with its austerity program, which would create nervousness in the sovereign bond market. Domestic banks are big holders of those bonds and would be impacted, so this could be a potential trigger point,” said Wilkinson from Royal London Asset Management.

The FTSE MIB index
FTSEMIB, -0.44%
rallied 1.1% to 16,712.26, after shaving off 4.5% on Monday.

Euro-zone data was also in focus. The final composite purchasing managers’ index for the region rose to 48.6 in January, marking a ten-month high and coming in above an earlier estimate of 48.2. The index still indicated the private-sector economy deteriorated, but that the pace of the decline eased. See: Euro-zone PMI signals downturn eased in January.

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